Zotefoams plc (LON:ZTF), a world leader in cellular material technology, has announced its unaudited preliminary results for the year ended 31 December 2023.
“Record profit alongside significant investment in our ReZorce® recyclable packaging solution.”
Financial Highlights
| Foams4 | Group | ||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||
| Revenue (£m) | 125.7 | 124.6 | 1% | 127.0 | 127.4 | 0% | |
| Gross margin (%) | 33.9% | 31.0% | 290 ppt | 32.3% | 30.4% | 190 ppt | |
| Operating profit1 (£m) | 19.5 | 15.8 | 23% | 15.1 | 13.9 | 9% | |
| Operating margin (%) | 15.5% | 12.7% | 280 ppt | 11.9% | 10.9% | 100 ppt | |
| Profit before tax1 (£m) | 17.2 | 14.1 | 22% | 12.8 | 12.2 | 5% | |
| Basic EPS1 (p) | 19.0 | 20.6 | (8%) | ||||
| Net debt (£m) | 31.6 | 27.8 | (13%) | ||||
| Leverage ratio2 | 1.2 | 1.2 | 0% | ||||
| Final dividend3 (p) | 4.90 | 4.62 | 6% |
1 This is a reported number under UK adopted IAS and is after the deduction of amortisation of acquired intangibles amounting to £0.257m in 2023 and £0.258m in 2022
2 Leverage is that defined under the bank facility, with net debt at the end of the period divided by the preceding 12 months’ EBITDA, adjusted for the impact of IFRS2 and IFRS16
3 Final dividend is subject to approval at the May 2024 Annual General Meeting
4 Polyolefin Foams and HPP Business Units only. This excludes MuCell Extrusion LLC (MEL) which is incurring operating losses as it invests in ReZorce mono-material barrier packaging
Strategic Progress
| · | Good progress in both of the Group’s business areas, reflecting different stages of development |
| · | Foams business |
| – Record profit, strongly ahead of previous year | |
| – Margin growth through mix enrichment, efficiency and cost control | |
| – Exclusivity agreement with Nike extended to December 2029, first sales into basketball category | |
| – Planned capital investment in North America to support further organic growth | |
| · | MEL/ReZorce® mono-material barrier packaging |
| – Joint development agreement with a world-leading packager of beverages | |
| – Multi award-winning development, with significant technical and commercial progress in the year | |
| – Preparing for market trial by filling the first ReZorce cartons with fruit juice on commercial-scale equipment | |
| – Key milestones in Q2 will enable determination of optimal path to realise value |
Results highlights
| · | Group revenue of £127.0m, in line with record Group revenue in prior year |
| · | Record profits and continued improvement in profit margins |
| – Gross margin up 190 ppt to 32.3% (33.9% excl. MEL) | |
| – Operating margin up 280 ppt to 15.5% excl. MEL and 100 ppt to 11.9% incl. MEL | |
| – Segment margin in Polyolefin Foams up from 7% to 11% | |
| – Profit before tax excl. MEL up 22% to a record £17.2m | |
| – Profit before tax up 5% to £12.8m after continued investment drives progress in our ReZorce technology | |
| · | Strong cash generation reinvested in growth |
| – £6.3m of inventory investment to optimise capacity and in expectation of HPP growth | |
| – £5.5m cash outflow in MEL to drive the ReZorce opportunity | |
| – Net debt at £31.6m while year-end leverage ratio unchanged at 1.2x |
David Stirling, Group CEO, said:
“We have made a positive start to 2024, with overall sales ahead of the previous year’s record first quarter. Sales of HPP products have, thus far, been strongly ahead of the prior year, with expectations for continued strength in H1 2024 and more muted growth after this, mainly linked to in-year footwear demand patterns and underlying improvements in the markets for aviation and T-FIT insulation products. To date, sales of polyolefin foams are below the comparative period in the prior year, with European customers particularly impacted by weaker industrial demand, partially offset by more robust conditions in North America. We are cautiously optimistic about the underlying demand environment for polyolefin foams later in the year, supported by a business focus on application-specific initiatives to increase market share. Currently, polymer and energy input prices remain relatively stable and therefore, other than in non-footwear HPP where prices have increased based on raw material price inflation experienced in 2023, we do not anticipate any uplift in selling prices this coming year. Improved asset utilisation, product mix and operational efficiency are our key drivers of margin enhancement. In our MEL business unit, we continue to make good progress against the commercialisation objectives we have set for ReZorce, with some important milestones expected to be reached in Q2. Investment to support this will continue during 2024 as we determine the optimal pathway to realising the opportunity presented by this technology. As a result, and while we remain mindful of the uncertain economic backdrop, 2024 is expected to be another year of good progress for Zotefoams”.
Chair’s statement
Lynn Drummond
Chair
A year of stepping up
Dear shareholders
2023 was a year of stepping up at Zotefoams, marked by a significant increase in the profitability of our foams business. We further solidified our partnership with Nike through an extension of our exclusivity agreement and additionally, we heightened our commitment to sustainability with increased investment in our ReZorce® mono-material barrier technology, which is now progressing to the market trial phase.
Record profits
I am pleased to report that the Group achieved record profits for the year, exceeding market expectations with a profit before tax of £12.8m (2022: £12.2m) on revenues at a similar level to the prior year. As we continue to deliver successfully on our established autoclave technology strategy, following significant capital investment across the UK, USA and Poland, we are aware of the importance of differentiating between this business, comprising the Polyolefin Foams and High-Performance Products business units, and our high risk but potentially high reward MuCell Extrusion (MEL) business unit, now primarily dedicated to the development of the highly innovative ReZorce technology. In 2023, our autoclave technology businesses generated an impressive profit before tax increase of 22% to £17.2m (2022: £14.1m) on revenues up 1%. Conversely, increased investment in the ReZorce opportunity generated a loss of £4.4m (2022: £1.9m), on lower revenues from the equipment/royalty part of the business, as we head into the market testing phase following positive progress in the development of our award-winning technology.
Board composition
2023 saw two changes in the composition of the Board. I joined Zotefoams in early January and became Chair in May 2023, replacing Steve Good, who stepped down after nine years on the Zotefoams Board. In September 2023, Malcolm Swift joined the Board and took on the Chair of the Remuneration Committee, replacing Alison Fielding, who departed on the same date. I would like to offer my personal thanks to both colleagues for their valuable support to me, as well as my thanks on behalf of everyone connected to Zotefoams for their contributions to the Group. In November 2023, we announced the planned retirement of David Stirling, our Group CEO, after 26 years as a Board member and 23 years leading the business. David will leave behind him a growth business with a clear strategy, strength in depth and exciting opportunities. The recruitment process for David’s replacement is at an advanced stage and we look forward to updating shareholders on this important evolution for the Group.
Dividend
The Board is proposing a final dividend of 4.90p (2022: 4.62p) which, if approved by shareholders, would make a total dividend for the year of 7.18p (2022: 6.80p), an increase of 5.6%. This reflects the Board’s continued confidence in the Group’s future and is in line with its progressive dividend policy, recognising the importance to our shareholders of the dividend as part of their overall return. If approved, the final dividend will be paid on 3 June 2024 to shareholders on the register on 3 May 2024.
Our people
Central to the Group’s success is our talented, diverse and collaborative team. The Board recognises that it is this which makes Zotefoams a safe, great, enjoyable and fulfilling place to work. With travel restrictions no longer in place across all our geographies, we see how important and valuable direct interaction is and how diversity of thought and the sharing or our knowledge and expertise across locations accelerates realisation of our Group strategy. We have been very mindful of the impact of the ongoing high-cost environment on our staff and took appropriate pay decisions during the year.
Having the right people at Zotefoams, who understand and promote our culture, act at all times with integrity, safety-consciousness and dedication and possess the right knowledge and skills, continues to be critical to our future success. For the first time as Chair, I warmly welcome our new employees, extend my gratitude to our colleagues who have helped them integrate and thank all our hard-working people and their supportive families who have helped the Group continue to make good strategic progress.
Sustainability
Our purpose is to provide optimal material solutions for the benefit of society, reflecting our belief that, used appropriately, plastics are frequently the best solution for the sophisticated, long-term applications typically delivered by our customers. The Board is focused on the importance of sustainability and our strategy incorporates the consideration of climate change in terms of financial and operational impacts. Further progress was made in 2023 towards our sustainability targets.
Acting responsibly
The Board leads an ongoing programme to ensure the highest standards of corporate governance and integrity across the Group and has remained abreast of developing governance standards. The Board’s interactions and communications with executive management continue to be excellent and, as a result, the Board is well-placed to challenge, guide and support executive management in the delivery of the growth strategy. We continue to pay particular attention to the provision of a safe working environment for our staff across all global locations and to the empowerment of our employees. The Board also acknowledges the benefits of diversity, including that of gender and ethnicity, and is committed to setting an appropriate tone from the top in all diversity and inclusion matters.
Looking to the future
Zotefoams is well positioned for the future with well invested, differentiated assets, committed capable and passionate people, and a clear strategy for delivering profitable organic growth in a sustainable way. While we are mindful of ongoing macroeconomic and geopolitical headwinds, we remain confident about our future prospects for growth, margin improvement, ROCE and cash generation.
Lynn Drummond
Chair
19 March 2024
